1. This is an appeal filed against OIA No.125/2015 (STA-I) dated 27.7.2015 passed by the Commissioner of Service Tax (Appeals-I), Chennai. The issue involved in this appeal relates to waiver of penalty of Rs. 25,51,403/- imposed under Section 78 of the Finance Act, 1994.

2. The brief facts of the case are that appellant is holder of service tax registration for providing services of Storage and Warehousing to various industries. They were collecting storage charges, insurance charges, handling charges and miscellaneous charges from their customers for storage of goods at their public bonded warehouse and paying service tax from February 2006 onwards. During the course of audit by the department, it was noticed that appellant had not paid the service tax for the period from Sept’ 2008 to Dec’ 2009. Hence proceedings were initiated and a show cause notice dt. 10.8.2010 was issued demanding Rs. 25,51,403/- under Section 73(2), read with Section 73(1) of the Finance Act along with interest, proposing appropriation of amounts already paid towards the demand and also proposing imposition of penalty of Rs. 25,51,403/- under Section 78 of the Act. Upon adjudication of the notice, the adjudicating authority passed OIO No. 85/2011 dt. 5.9.2011 confirming the demand along with interest. He appropriated the entire amount of tax and interest already paid by them. He imposed equivalent penalty of tax under Section 78 of the Act. Being aggrieved with the above order of adjudicating authority, appellants preferred appeal before Commissioner (Appeals). The ld. Commissioner (Appeals) vide impugned order dt. 27.7.2015 upheld the OIO. Hence the present appeal before Tribunal.

3. Ld. Counsel, Shri B. Ganesh Prabhu, Chartered Accountant appearing on behalf of appellant-assessee submitted that non-payment of tax during the period Sept’ 2008 to Dec’ 2009 was due to calamity occurred in the warehouse of the appellant. He submits that on being pointed out by department, the appellant paid up the entire demand along with interest before issuance of SCN. In that event, no SCN can survive under Section 73(1) of Chapter V of the Act. It is not a case of non-levy, non-payment, short levy or short payment of tax or erroneous refund. The Revenue has alleged suppression of facts by the appellant-assessee with intention to evade payment of tax and invoked longer period of limitation in this case. However, there is no mention or discussion on the allegation of fraud, collusion or wilful misstatement of suppression of facts either in the SCN or in the OIO so as to invoke Section 73(1) of the Finance Act. Ld. counsel submits that collection of tax from customers had been accounted in the books of account of appellant-company and there has been no deliberate intention to suppress or evade payment of tax. He submits that in this case, provision of Section 73(3) of the Act is only applicable and not Section 73(1). He submits that there are number of decisions of Tribunal and higher courts to the effect in cases of discharging the tax/duty liability either on their own by assessee or on being pointed by audit before issuance of SCN, invocation of longer period is not invokable to impose equal penalty. He relied on the following case laws :—

5. Heard both sides. The period of dispute is from 1.9.2008 to 31.12.2009. The show cause notice is dated 10.08.2010. The main contention of the appellant is that when the tax amount is paid together with interest, before issue of show cause notice, penalty under section 78 of the Finance Act 1994 ought not to be imposed. The Appellant justified their above contention taking recourse to Section 73(3) of the Finance Act, 1994. On the other hand, the revenue has taken recourse to Section 73(4) of the said Act. For easy reference, the sub-clauses (3) and (4) of Section 73 are reproduced below:

“SECTION 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.

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(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :

Provided that the Central Excise Officer may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of ‘eighteen months’ referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation – For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of’

(a)

fraud; or

(b)

collusion; or

(c)

wilful mis-statement; or

(d)

suppression of facts; or

(e)

contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax.”

The appellant has laid emphasis on the fact that the show cause notice is silent on the ingredients of ‘suppression’. Para 6 of the show cause notice (at page 73 of the paper book) is extracted below:

“The above facts came to the notice of the Department only on the account of the audit of the accounts of the assessee but for which the facts would not have come to light. Therefore, it appears that extended period of time limit under proviso to Section 73(1) of the Finance Act, 1994 is invokable for the demand of service tax, Education Cess and Secondary & Higher Education Cess not paid. Whereas, it appears that assessee having failed to pay to the credit of the Central Government within the stipulated period the above said service tax that is liable for payment in accordance with the provisions of Section 68 or rules made thereunder, rendered themselves liable for payment of interest as applicable in terms of Section 75 of the Act.”

A reading of the above makes it evident that the only allegation is that the fact of non-payment of tax came to the notice of the department only on account of audit of appellant’s accounts. This alone is not sufficient warranting invocation of penalty under section 78 of the Finance Act 1994. Section 78 of the Finance Act 1994, during the period in dispute, reads as under:

Penalty for suppressing value of taxable service.

Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of

(a)

fraud; or

(b)

collusion; or

(c)

wilful mis-statement ; or

(d)

suppression of facts; or

(e)

contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short paid or erroneously refunded.”

Both the OIO and OIA have justified the imposition of penalty under section 78 of the Act without appreciating the fact that the ingredients as stated above have not been incorporated in the show cause notice. The findings given by the first appellate authority in para 7 of his order is to the effect that the payment of service tax, whether before or after the issue of show cause notice cannot alter the liability of penalty, as per Section 78 of the Finance Act and that the appellant has already been spared from non-imposition of penalty under section 78 of the Act. This is clearly an erroneous finding as the penalty under section 78 can be imposed only under the circumstances mentioned in the section as extracted above.

6. The show cause notice is the very foundation in any proceedings. What is not alleged in the show cause notice, cannot be traversed at a later point of time in any proceedings as held by the Hon’ble Supreme Court in the case of the CCE v.Ballarpur Industries Ltd. [2007] 11 STT 6. The penalty under section 78 of the Finance Act is unsustainable is proved by the judgment of the Tribunal in the case of CST v. Independent News Services (P.) Ltd. [2012] 21 taxmann.com 196 (New Delhi – Cestat). Accordingly, the penalty imposed under section 78 of the Finance Act 1994 is set aside. Appeal allowed insofar as imposition of penalty under Section 78 of the Finance Act, 1994 is concerned.

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